Federal Transportation Funding: Time Running Out

Feb. 16, 2015
As the clock continues to wind down the end of the current highway and transit authorization, there are numerous serious discussions and concrete proposals being brought forward to fix the issue.

Here We Go Again — Time Running Out for Funding the Federal Transportation Program

The U.S. Congress has few legislative days remaining until the expiration of current transportation authorization law at the end of May, and soon the highway trust fund once again will lack sufficient resources to sustain current funding levels for the federal highway and transit programs. Finding new resources to replenish the trust fund has been a hot topic in Washington over the past several weeks, with seemingly each day bringing new proposals from the Obama Administration or Congressional leaders for finding a solution. There have been countless official statements and press articles discussing the viability of a gas tax increase, and introducing the terms “repatriation” and “budget reconciliation” into the local nomenclature. The good news is that at long last, there are some true proposals on the table to kick start the debate on how to finance the federal surface transportation program into the future. The bad news is that each of these proposals face serious opposition, and it does not appear that there will be enough time for Congress to find a solution before the clock runs out. This will likely create a need for yet another short-term extension in the next two months.

As transit advocates begin to ascend on Washington this spring to meet with their members of Congress, here is a brief primer of where the debate stands:


With an increase in the gas tax still an unlikely option, President Obama and some senators have been focusing on the concept of “repatriation” to generate revenue for the Highway Trust fund. Repatriation would generate new revenue from taxing profits made by American companies that have been placed in foreign banks, such as the Cayman Islands. Two competing proposals have emerged. In his fiscal year 2016 budget request (released on February 3), the president proposed a mandatory 14 percent tax on American profits earned and parked overseas banks. This proposal, as part of a broader tax reform package, would seek to gain enough revenues from the estimated $2 trillion in foreign offshore corporate assets to pay for the extra $278 billion that would be needed to fund his “GROW America Act” proposal over the next six years.

Meanwhile in Congress, Senators Barbara Boxer (D-CA) and Rand Paul (R-KY) introduced a version of repatriation legislation that would grant a tax holiday to corporations that voluntarily bring overseas funds back to the United States. The one-time tax holiday would give companies the option to repatriate foreign assets at a 6.5 percent tax rate — much lower than current corporate tax rates — which could reach 35 percent. The idea is that the tax holiday will induce U.S. companies to bring financial assets back to the country — that would otherwise remain in foreign banks — to take advantage of the lower tax rates. The resulting new revenue would then be used to fund a full, six-year highway and transit bill.

There is much optimism that these repatriation proposals could be the key to finally finding a solution to stabilize the highway trust fund, for at least the next few years until a more permanent solution can be found. Indeed, both the Obama Administration and the Republican leadership in Congress have pointed to the tax code as the most likely place to find the needed revenues, and with actual proposals on the table, we seem to be headed in the right direction. However, the concept of repatriation is not without its critics. Several Republicans have expressed reservations that repatriated funds should be held and used to allow for lower individual tax rates as part of a broader tax reform package, and have even gone so far as to suggest that using these funds for infrastructure will damage the ability of Congress to pass tax reform legislation down the road. In addition, some federal budget analysts have expressed skepticism that in the long run, repatriation or tax holidays fail to produce the desired revenues, and could actually have the effect of increasing the deficit. It remains to be seen whether a stand-alone tax holiday bill, or broader tax reform that uses repatriated funds to finance transit and highway projects will become a reality. 

The Gas Tax

In the meantime, what happened to the gas tax debate? As most transit advocates know, the “motor fuels user fee” (the gas tax) — that finances some 80 percent of the federal public transportation program has for several years been unable to collect sufficient resources to grow federal investment or even sustain current spending rates, which has led to a virtual flat-lining of the federal program. This simplest solution to bringing stability to the highway trust fund would simply be to raise the gas tax —something that has not been done since 1993. On February 3, Congressman Earl Blumenauer (D-OR), along with 24 Democratic cosponsors, re-introduced legislation to increase the gas tax by 15 cents, and index it to inflation. This legislation is supported by the American Public Transportation Association, along with many other transportation interest groups, such as the U.S. Chamber of Commerce and most highway advocacy organizations.

Unfortunately, despite the fact that gas prices are among the lowest in recent history, increasing the gas tax still does not appear to be a viable solution. In January there was some cause for optimism, as Republican Senator Bob Corker (R-TN) publicly renewed his call for an increased gas tax, while other Senate Republicans such as John Thune (R-SD), incoming Chairman of the Senate Commerce Committee, and James Inhofe (R-OK), incoming Chairman of the Senate Environment and Public Works Committee said consideration of a gas tax increase should at least be on the table. However, President Obama has still refused to endorse a gas tax increase. In addition, key Republicans, such as Speaker of the House John Boehner (R-OH), Chairman of the House Transportation and Infrastructure Committee Bill Shuster (R-PA), Ways & Means Committee Chairman Paul Ryan (R-WI) and Senate Majority Leader Mitch McConnell (R-KY) have all stated their opposition to a gas tax increase. Despite slightly opening the door to at least consideration of a gas tax increase, this still remains a highly partisan issue, with only a number of House Democrats leading the push and no backing for from the President. 

Budget Reconciliation

In the midst of debates over repatriation and gas tax increases, at least one Senator — John Thune (R-SD) has offered yet a third possible solution to generating new revenues for the trust fund. Senator Thune has put forth the idea of using the complex budget reconciliation process to enact tax reform legislation that would include finding new revenues to fund the highway trust fund. Under this process, which has been used in the past to enact controversial legislative proposals, the House and the Senate would have to pass non-binding budget resolutions that include instructions to create a Congressional panel to put forth a mandatory budget reconciliation bill that would include tax reform measures. Under Congressional rules, such a budget resolution would only need 50 votes to pass, is not subject to filibuster or amendment, and allows for limited time for debate. This controversial process has been used in recent years to pass portions of Obamacare and other tax reform measures. The budget reconciliation process has intriguing potential, but has not yet been given serious discussion among the Obama Administration or the Congressional leadership, who prefer to take on tax reform under “regular order.”

As the clock continues to wind down the end of the current highway and transit authorization, it is at least refreshing to see so many serious discussions and concrete proposals being brought forward to fix this issue. Unfortunately, there seems to be little optimism that there will be enough time for the White House and the Congressional leadership to reach an agreement on tax reform before the trust fund once again runs out of sufficient resources to finance the current program. Congress and President Obama know there is a problem and seem serious about working together to reach a solution. The major question is whether in advance of the Presidential election in 2016, there is the political will to break the gridlock and pass meaningful legislation. If not, we will continue to be faced with short-term solutions or serious reductions in the federal surface transportation program — bad news for everyone. I urge all transit advocates visiting Washington this spring to send a clear message that a solution is needed — quickly.

Paul Dean is the director of Dean & Dean Consulting LLC.